- Posted by Chris Carmen
- On November 7, 2017
The concept of “Blend & Extend” with regards to commercial office industrial space leases is certainly not new. However, throughout the downturn of the economy, there’s been a considerable amount of new life breathed into the practice, with many companies clamoring to take advantage of rock-bottom lease rates and liberal landlord incentives, even though their current leases may not be due to expire for a few more years. So how does “Blend & Extend” work?
A tenant that is happy with the layout and location of his space and intends to remain in the space for a period in excess of the existing lease term, can often renegotiate the terms of the existing lease in exchange for extending that lease. Specifically, the term “Blend” refers to when the tenant’s original, or existing, lease rate (for the balance of the current lease) is combined with a newly negotiated lease rate at current market pricing for additional lease term (the “Extend”), resulting in a lower average lease rate for the balance of the existing lease AND the additional lease term.
The beauty of this arrangement is simply that landlords are eager and willing to reduce their tenant’s immediate lease cost in exchange for their commitment to remain in the building, giving the landlord a hedge against a loss of future tenancy. It’s not uncommon for landlords to provide upgrades to the tenant’s space as the added incentive to stay put.
Critical to this process though, is a knowledgeable commercial real estate broker who specializes in exclusively representing tenants, NOT landlords or building owners. By advocating solely in the interest of the tenant, tenant-only brokers are in a position to negotiate the lowest rates and most favorable lease terms because they eliminate the possibility of the inevitable conflict of interest that occurs when brokers represent both the tenant and the landlord. In such cases, the broker’s advocacy for the tenant is watered down by its similar advocacy for the landlords he/she represents.
Our ITRA colleagues at VICUS PARTNERS have also authored a great article on “Blend & Extend”The NYC lease rates quoted are substantially different than those quoted for Indianapolis office space, but the concepts of “Blend & Extend” are soundly illustrated.
Think you’re ready to “Blend & Extend” on your office space? Talk to Carmen first and ensure you have a tenant advisor/advocate on your side.